Taxation Laws Amendment Bills, 2010 Presented by Stiaan Klue

General comments First Amendment Bill

General Extremely short notice to prepare comment Written submission to Committee – 4 June 2010 Final written submission to Treasury – 7 June 2010

Specific comments

Para 13(2)(b); (bA) and (c) of the Seventh Schedule Proposed amendment: It is proposed that the exemption for professional dues be adjusted to more closely reflect commercial reality. Under the exemption as revised, professional dues paid by an employer on behalf of an employee will remain non-taxable subject to two criteria. Employment must involve the practice of the profession Pre-requisite for that person to practice within the relevant profession

Para 13(2)(b); (bA) and (c) of the Seventh Schedule Problem statement: Accountants and tax practitioners are unregulated, although their professional affiliation may be a pre-requisite of employment and Continuing professional development. This proposal signals the message that Government does not support professional affiliation and practices. SA professionals plays a significant role in the economy and growth of the country

Para 13(2)(b); (bA) and (c) of the Seventh Schedule Proposed solution: A list must be Gazetted by the C:SARS upon careful consideration of the different professions to guide employers.

Section 6(1) (zA) – Severance benefit Problem statement: The tax tables taxes the severance benefit. The section 23(i) prohibition does not, AND SHOULD NOT, apply to the severance benefit. The gross amount (accrued or received) in respect of these benefits can be reduced by deductions, such as retirement fund contributions or medical expenses.

Section 6(1) (zA) – Severance benefit (cont…) Proposed solution: The table should only apply to the “taxable” portion of the severance benefit.

New Section 10C Proposal: The interest exemption should only be applicable to savings that flow into the general economy and all other forms of interest are to be taxable at marginal rates.  

New Section 10C Problem statement: Acknowledge the fact that loans between closely held family companies and other connected persons have created tax planning opportunities and distortions.   - However, many small and medium sized organisations are funded by way of loans from individuals, who do not necessarily have an interest (or minority interest). The proposed amendments are unnecessarily punitive towards these individuals and will limit growth in this sector of the economy.

New Section 10C Proposed solution: We recommend that the interest exemption be revisited and expanded to accommodate the individuals who provided funding to small and medium sized organisations who do not have an interest or have a minority interest in such organisations. A connected person test could be introduced or the list of exempt entities could be expanded to accommodate these individuals.  

Section 7 Problem statement: The proviso excludes lump sums. The definition of lump sum does not include severance benefits. 13

Section 7 (cont…) Proposed solution: The proviso excludes lump sums. The definition of lump sum does not include severance benefits.

General comments Second Amendment Bill

Paragraph 3 of the Seventh Schedule to the ITA Problem statement: - This proposed amendment is wrong and totally unnecessary. - Vacation Club case is totally misplaced and out of context. The premise of the Income Tax Act (in the context of Fringe benefits) is that it is the recipient (the employee) who must bear the tax on the benefit. This was never at dispute and was confirmed by the court.

Para 3 of the Seventh Schedule to the ITA (cont..) Proposed solution: The current legislation contains sufficient provisions to allow SARS to “effectively administer employees’ tax” – refer to paragraph 7 of the Fourth Schedule and the existing paragraph 3 of the Seventh Schedule.   What is needed is that employers and employees alike must be given an easier access to SARS to enable them to agree on the value of benefits in dispute and the Act must not be amended.